While this sounds like a headline from an interview of Richard Dawkins, a strong case can be made that Wal-Mart Stores Inc. (NYSE:WMT) is one of the strongest forces currently improving the lives of the poor. Wal-Mart, the world’s largest retailer, has done a lot more for the global economy than just “always low prices.” The company is often discussed in business school classes across the country because of how much of an impact it has had on how businesses work now. From product sourcing to supply chain management, Wal-Mart is a force that is making the global economy more efficient and driving down prices across the board.
The Pittsburgh Post-Gazette recently pointed out in an article that Wal-Mart “may have done more for the poor than any business ever.” This is despite the low wages the company pays, the countless sweat shops across the world supplying the company and the devastating effect the company has had on “mom and pop” small businesses. The reasoning behind the article is that since so many people in the world live in poverty, selling the stuff they need at a lower price is a viable alternative to helping them make more money.
The question is Are low prices a good thing? Lower prices often mean lower quality and that is certainly true with Wal-Mart. Lower prices are also a double-edged sword — because of its sheer purchasing power, Wal-Mart often sets the price it pays to suppliers. If the suppliers do not like the profit margins of a deal with Wal-Mart, good luck finding another buyer. The extreme price competition that Wal-Mart has introduced to global supply chains has forced many companies to either go out of business or improve their economies of scale and supply chain practices…
One of the biggest problems with the perspective of lower prices being equivalent to higher wages is that as companies grow larger to be able to afford to receive lower prices for their good sand services, the improvements in efficiency and increased automation are destroying many middle-class jobs. Wal-Mart may be making goods cheaper but it also may be driving down wages and helping eliminate the middle class in the U.S. Even though many of the products Wal-Mart sells in the U.S. are made in third world countries, substitute goods made in the U.S. have to at least dip in price to remain viable alternatives for consumers.
Call it progress or the death of the middle class but the fact remains that Wal-Mart has effectively stretched the budgets of the poor with its low prices. The company’s low prices are what insulates it from criticism that it destroys wages, forces small businesses to close and keeps sweat shops in business. Eventually, the company’s affect on smaller businesses may reach the point that it is seen solely as a job destroyer and an under-cutter of profitable industries. For now, Wal-Mart is one business helping poor families keep their heads above water financially. Though the question has to be asked: Is Wal-Mart destroying the future of profitable American businesses?
Here’s how shares of Wal-Mart have been trading relative to the Dow Jones and S&P Indices over the past week:
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